TODAY’S S&P 500 SET-UP - November 22, 2010

As we look at today’s set up for the S&P 500, the range is 33 points or -0.64% downside to 1192 and 2.11% upside to 1225. Equity futures are trading higher after Ireland agreed to accept a three-year bailout package from the EU and IMF easing concern over the state of the Euro zone.  No important economic data is expected today.

  • Dover Corp. (DOV) may rise as much as 30% as it cuts costs, expands in emerging markets, Barron’s reports, citing analysts
  • Dynegy (DYN): Blackstone Pres. Tony James said $5-shr offer for Dynegy is full and fair, not prepared to raise, in CNBC interview
  • Genzyme (GENZ) said it is on track to meet Nov. 28 deadline to move finishing and filling ops for U.S. products out of its Allston, Mass., plant
  • Merck (MRK)’s cholesterol drug Vytorin safely lowered risk of heart complications in kidney disease patients in study. Jury found in its favor in Fed. Fosamax case
  • Time Warner (TWX)’s “Harry Potter and the Deathly Hallows -- Part 1” opened with $125.1m in U.S. and Canadian ticket sales, a record for series and sixth-best of all time, missed est.


  • One day: Dow +0.20%, S&P +0.25%, Nasdaq +0.15%, Russell +0.49%
  • Month-to-date: Dow +0.77%, S&P +1.39%, Nasdaq +0.43%, Russell +2.99%
  • Quarter-to-date: Dow +3.85%, S&P +5.13%, Nasdaq +6.31%, Russell +7.13%
  • Year-to-date: Dow +7.44%, S&P +7.59%, Nasdaq +10.97%, Russell +15.83%
  • Sector Performance: Materials +0.80%, Energy +0.84%, Consumer Discretionary +0.47%, Industrials +0.31%, Tech +0.29%, Consumer Staples +0.07%, Healthcare +0.09%, Financials (0.04%), and Utilities (0.38%)


  • ADVANCE/DECLINE LINE: 534 (-1360)  
  • VOLUME: NYSE - 1101.70 (+8.13%)
  • VIX: - 18.04 -3.79% - YTD PERFORMANCE - (-16.79%)
  • SPX PUT/CALL RATIO: - 1.09 from 1.19 -8.45%  


  • TED SPREAD - 15.46
  • 3-MONTH T-BILL YIELD 0.14% -0.01%
  • YIELD CURVE - 2.36 from 2.38


  • CRB: 298.89 +1.2%
  • Oil: 81.98 -0.53% - NEUTRAL
  • COPPER: 384.25 +0.10% - BEARISH
  • GOLD: 1,353.90 +0.15% - BEARISH


  • EURO: 1.3673 +0.43% - NEUTRAL
  • DOLLAR: 78.504 -0.14%  - BULLISH



European markets:

  • FTSE 100: +0.22%; DAX: +0.47%; CAC 40: 0.27%
    European markets are trading higher in light of Ireland's decision to formally request financial help from its European partners.
  • The request was officially welcomed by the European Union. Sources close to the deal point to a probable 3-year package which will be financed from the EFSM and the EFSF and expected to be in the order of €80-90B.
  • The IMF says it is also ready to join the support program. Contributions from Sweden and UK are also anticipated. Negotiations over the detail of the deal are not expected to conclude before the end of November

Asian markets:

  • Nikkei +0.93%; Hang Seng (0.4%); Shanghai Composite (0.15%)
  • Asian markets mostly rose today on positive sentiment generated by an apparent rescue of Ireland.
  • Construction sent Taiwan higher on news that the government plans to improve housing stock across the island.
  • QR National’s rose 4% on its trading debut to support Australia.
  • South Korea inched up on tech gains, but shippers and financials fell to restrain the overall market.
  • Defensive stocks went up in China, but they weren’t enough to overcome weakness in banks, which fell 1% after their reserve requirement ratios were raised 19-Nov.
  • Property stocks took Hong Kong down after the government imposed new measures to reduce speculation in the real-estate market. 

Howard Penney
Manging Director

THE DAILY OUTLOOK - levels and trends














McCarran Airport volume increased 2% YoY in October.



The calendar was similar to last year and while the hold last year was normal, weak table drop last year provides an easy revenue comparison on the Strip.  Last October, a 9% decline in table drop per visitor contributed to a 10% Strip revenue decline. 


We are estimating Strip revenues increased a solid 2-5% in October 2010.  Our growth estimate would’ve been even higher but October 31st fell on a Sunday which means weekend slot revenues won’t be counted.  Slot handle will be counted so the hold percentage will appear low.  This will reverse in November.


Here are our estimates broken down by metric:



The Week Ahead

The Economic Data calendar for the week of the 22nd of November through the 26th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


The Week Ahead - cal1

The Week Ahead - cal2

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The Ber-nank Blame

This note was originally published at 8am this morning, November 19, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“When you cease to exist, then who will you blame.”

-Bob Dylan


For a global macro analyst, the early morning grind is usually bland. It’s always dark and now it’s getting cold. This morning, however, fired me up! At 530AM EST, Ben Bernanke and his Fiat Friends were holding an academic groupthink session on live TV from Europe.


Before I get into Bernanke’s proactively predictable opening remarks, here’s your morning go-juice:

  1. Bernanke said that calling what the Fed is doing “Quantitative Easing” is “inappropriate”!
  2. As Bernanke was speaking, the Chinese raised rates on their reserve requirements by another 50 basis points (5th time this year)

It’s actually pretty funny. These academic Fiat Fools obviously take themselves quite seriously and while their god of Big Keynesian Government Intervention was speaking, the Chinese poked him again.


At 533AM, the play-by-play hitting the newswires looked like this:

  1. Bernanke says “inflation is expected to be subdued for some time… and the FOMC remains committed to price stability…”
  2. China raises rates again on “global inflation concerns”

You’ll never know what World War III looks likes until it’s staring you in the face, but this war may very well be in motion – a global economic war of both rhetoric and action between the Fiats and the Chinese.


While we wholeheartedly agree with Bernanke that calling Quantitative Guessing (QG) by any other name is “inappropriate”, what we completely disagree with this morning is Bernanke effectively joining the political arms race of blaming the Chinese for American economic problems.


Canadians will remember a South Park song titled “Blame Canada” (it was actually nominated for the Academy Award for Best Song in 1999). For whatever reason the lyrics of this damn song started playing in my head while I was watching Bernanke chirp the Chinese:


                “We must blame them and cause a fuss

                  Before somebody thinks of blaming us!”


It’s really pathetic and sad altogether that the 2010 equivalent of a South Park video has turned out to be the best explanation of what’s really going on here. Xtranormal’s cartoon “Quantitative Easing Explained” video ( has been spreading to the world’s inboxes like wildfire in the last few weeks – last count as of this morning = 1,796,284 views.


Being at the hub of the Hedgeye exclusive network certainly has its privileges. I get to see what we call “the heat” in terms of what serious people care about on a real-time basis. Serious people aren’t just money managers. We have plenty of upstanding people around the world who work in a variety of professions who are sick and tired of being lied to. We offer them a platform to share their voice.


Washington has abused the global privilege of being the world’s fiduciary of the global reserve currency. Everyone who isn’t paid to be willfully blind gets that by now. The days of conflicted and compromised politicians and financiers living in the shadow inventory of American opacity are ending. If it takes a cartoon to expose the truth, sorry Heli-Ben, YouTube is going to smoke your academic dogma out of its hole.


In a roundabout way, this is all very good news. I don’t think I can handle watching American capitalism fold into the hands of crony-socialism for much longer. Plenty of foreign-born entrepreneurs hiring in the American business community feel the same. This isn’t the country that I came to in 1995.


I’m game to play American Capitalist against the socialists. I’ll even wear the red, white, and blue jerseys instead of my homeland’s. While The Ber-nank’s broken promises have perpetuated nothing but JOBLESS STAGFLATION and a global blame game against America’s #1 client (China), I’ve gone about bootstrapping my own American small business, hired 43 Americans, sucked up Obamacare costs like a slurpee, and liked it.


Back to the data, the lastest Nielson survey shows 89% of rural Chinese citizens expecting to see inflation in the next 12 months. Chinese consumer confidence just fell for the 1st quarter in the last 6 and the #1 concern was, take a wild guess blame gamers – inflation. Meanwhile German producer prices (PPI) came in higher again sequentially (month-over-month) this morning at +4.3% year-over-year growth.


Chairman Bernanke, it’s time to think outside of your Great Depression box and strap on some of global macro and accountability pants. If you don’t start seeing the data as it’s reported real time, “when you cease to exist, who will you blame?”


My immediate term support and resistance levels for the SP500 are now 1191 and 1203, respectively. I sold our entire US Equity position (6% position in the Hedgeye Asset Allocation Model) on yesterday’s fleeting US stock market strength. I don’t buy-and-hold what I don’t trust.


Best of luck out there today and have a great weekend,




Keith R. McCullough
Chief Executive Officer


The Ber-nank Blame - 1

We See Inflation

Conclusion: QG = inflation [globally] = monetary policy tightening [globally] = slower growth [globally].


I’ll show the above equation until I’m blue in the face. In an quick and easy-to-understand way, it shows why Chairman Bernanke’s Quantitative Guessing experiment will do nothing more than to wreak havoc on global economies and markets.


Inflation is quickly percolating throughout the global economy. With the exception of a conflicted and compromised U.S. CPI report and the U.S. Housing market (we expect a 15-20% decline in prices by year-end 2011), INflation, rather than deflation, is what the rest of the world sees on a marked-to-market, real-time basis.


In fact, only about a handful of Fed Presidents fail to see what the rest of the world sees: inflation. So, in the spirit of service and being good Samaritans, we’ve decided to help Chairman Bernanke out in his tireless search for inflation. Below, we highlighted a few of the more interesting data points and nuggets from the global economy from just this week alone:



  • After six rate hikes YTD, Indian inflation (WPI) came in a whopping 4bps slower in October at +8.58% YoY.


  • Euro area and EU inflation accelerated 10bps each, coming in at +1.9% YoY and +2.3% YoY, respectively.
  • Korea hiked interest rates for the second time this year, raising the 7-day Repo Rate 25bps to 2.5%.
  • Chinese vegetable prices were reported up +62.4% YoY. To put this in context, China has roughly 477 MILLION citizens that live on less that $2 per day a PPP, with food being their largest expense. That’s 53% larger than the world’s third most-populous nation (U.S.).
  • Chinese Central Bank Governor Zhou Xiachuan said, “China is under pressure from capital inflows” and hinted that price controls may be in China’s near future.


  • Chinese consumer confidence fell for the FIRST TIME IN SIX QUARTERS on increasing inflation expectations. The percentage of consumers expecting inflation to quicken grew 600bps from the prior survey to 76%. In rural areas, that delta was +1,100bps, coming in at 89%.


  • Korea will reinstate a 14% tax on foreigners’ holdings of the nation’s bonds, as well as a 20% tax on capital gains in an effort to spur speculative inflows of capital into the nation’s economy.


  • In classic form, three minutes into Bernanke’s QG campaign speech in Frankfurt, China hiked its banks’ reserve requirements (+50bps) for the second time in as many weeks and the fifth time this year.
  • China’s State Administration of Grain said it will ensure adequate grain supplies to manage inflation and cited speculation and excessive liquidity, NOT supply and demand imbalances, for pushing up the prices of grain in the nation. “China’s grain demand and supply are basically balanced with relatively ample stockpiles, so fundamentals don’t support a rally in prices,” the administration’s Zeng Liying, Deputy Director of the State Administration of Grain, was quoted as saying. “The government has the ability to ensure supply.”
  • According the United Nations’ Food and Agriculture Organization’s World Food Price Index, global food prices have climbed to the highest level since July 2008, when countries from Egypt to Haiti experienced deadly riots due to rising food costs.
  • Hong Kong imposed a 15% tax on home sales and raised down payments 1,000bps to curb the ascent in home prices (up ~50% since January 2009). Hong Kong Monetary Authority Chief Executive Norman Chan said plainly, “The Fed’s Quantitative Easing may spur inflows of cash into Hong Kong”, which would effectively serve to make a bad situation worse. Earlier this month, Goldman Sachs Group Inc. raised its 12-month target for Hong Kong’s Hang Seng Index to 29,000, saying the city has the most to gain from extra liquidity released by quantitative easing programs and China’s growth. I guess the operative saying here would be, “Don’t fight the Hong Kong Monetary Authority”, no?
  • German PPI came in higher sequentially at +4.3% YoY.
  • Brazil’s IGP-M General Market Prices Index rose 1.2% MoM in the second November reading, following a 0.89% MoM gain in October. Consumer prices (+0.59%), producer prices (+1.55%), agricultural prices (+4.65%) and industrial prices (+0.49%) all accelerated sequentially on a MoM basis.
  • Argentine President Christina Fernandez’s 2011 budget has been stuck in Congress since November 10th, on political opposition that she and her cabinet are understating their 2011 inflation forecast. At 8.9% the forecast is well below the estimates of current Argentine consumer surveys and economist calculations of ~25-30% YoY price increases.. “This budget is a lie,” remarks Francisco de Narvaez, a lawmaker for the Federal Peronism opposition party. “Approving this bill is lying to the people, it’s telling them that there won’t be price increases.” Argentine economic statistics have been under heat since January 2007 when then-President Nestor Kirchner was rumored to have started tampering with the official inflation statistics. Reminds me of a certain government we’re all familiar with… 

At any rate, the likelihood that Bernanke sees this note is about as likely as him seeing inflation with $150 oil – very low. Given, we offer it to you as an opportunity to position your portfolio(s) ahead of what we’re deeming World War III, which is a global economic war of rhetoric and monetary policy action.


Like most World Wars, this won’t end well for the global economy in the near term. For more details, please check out this clip of Keith on Bloomberg t.v. today discussing in just a few short minutes what took me 900 words to say: 


Have a great weekend,


Darius Dale



We See Inflation - 1

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